Used-car market on losing end of 'cash for clunkers'

Stuck with the clunkers while others get the cashAs consumers trade in old cars and snatch up new ones, used-car dealerships and salvage yards are on losing end

JENALIA MORENO, HOUSTON CHRONICLE

Published 5:30 am, Saturday, August 8, 2009

Photo: Melissa Phillip, Chronicle

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Tim Straney, of Glenn's Auto and Truck Parts, said a smaller inventory of used cars will raise prices of pre-owned vehicles.

Tim Straney, of Glenn's Auto and Truck Parts, said a smaller inventory of used cars will raise prices of pre-owned vehicles.

Photo: Melissa Phillip, Chronicle

Used-car market on losing end of 'cash for clunkers'

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The wildly popular “cash for clunkers” program may have some drivers, new car dealers and automakers giddy, but not everyone is geared up about the federal giveaway.

Used-car dealers say the program has been a lemon for sales, and salvage yard owners are anxious about its impact on their industry.

Consumers have swarmed auto dealers in recent weeks to trade in gas-guzzling jalopies for fuel-efficient cars to cash in on federal rebates as high as $4,500. Auto dealers are then supposed to destroy the trade-in's engine and sell the vehicle to salvage yards and car auctions for scrap value.

But there are potential losers in the “cash for clunkers” bonanza — and so far the biggest is the used-car market because of shrinking inventories of pre-owned vehicles, said Tim Straney, owner of Glenn's Auto and Truck Parts on Pinemont Drive.

“With the slowdown in the market, new car dealers were selling less cars for the last eight months. That means fewer trade-ins,” said Ken Riley, manager of Houston's Uncle Buddy's Auto Sales. “You've got a double whammy because of the cash for clunkers program.”

Traffic at used-car lots has dropped since the clunkers program began last month, said Douglas Clark of Clark Motors, a North Shepherd Drive company his father started in 1945. And with Congress infusing an additional $2 billion into the program, an untold number of more clunkers will see their last days.

Traffic at used-car lots has dropped since the clunkers program began last month, said Douglas Clark of Clark Motors, a North Shepherd Drive company his father started in 1945. And with Congress infusing an additional $2 billion into the program, an untold number of more clunkers will see their last days.

“It does seem like it's taken some buyers away from us for now,” Clark said. “It seems like they are more interested in buying new cars.”

Loss of the engines

Last month, the company closed its FM 1960 lot because used-car sales have dropped in the last few years, a victim of the slowing economy and competitive financing from new car dealers,he said.

A smaller inventory of used cars will drive up the prices of pre-owned vehicles, Straney said.

He thinks the program will provide his salvage yard with more inventory but he has yet to buy any of the clunker cars. But scrap dealers won't get the best part of the clunkers — the engines.

“That's the biggest chunk of money,” said Straney, who recently sold a Mercedes engine for $3,750. He said the average used engine can sell for $750.

Though salvage yard owners expect the program will eventually give them more inventory, they worry that many of the clunkers will be older, less desirable models they can't sell as easily.

Darrell Dodds, owner of Scott Street Auto Parts, said he typically buys cars that are 2002 or newer and primarily sells the parts to repair shops, including those that work with insurance companies to fix wrecked vehicles.

“The older cars are less desirable as parts cars,” said Dodds, who expects to buy about 100 clunkers and has received about a dozen so far. “They won't be worth dismantling at all.”

Waiting to be reimbursed

Dealers are waiting until after they receive government reimbursement for the cars they bought under the program before they sell the jalopies.

After dealers are paid, they have a week to destroy the engine and sell the vehicle to a scrap dealer.

Salvage yards have 180 days to pick apart the car and sell it for parts before they must crush it.

Jannette Patke, president ofPatkes Auto Parts on Cullen Boulevard, hopes she gets some vehicles that will help her make a little money.